Directors: Protection from removal

Companies Act 2006, sec168 provides that any director can be removed from office by a resolution of the shareholders, and we offer a service for this.

An individual director, or the directors collectively can be protected from being removed in this way by:

  • appropriate provisions in the company's articles
  • being a party to a shareholders' agreement under which the parties agree not to use their voting power to remove each other from office
  • having a service contract. This will not prevent the director from being removed, but may provide for compensation if s/he is removed. The compensation payable may or may not be sufficient to discourage the shareholders from removing him
  • if the director is a shareholder his or her removal may of itself be unfairly prejudicial conduct, or may be part of a larger course of such conduct, which may give the director a right of redress. We do not deal with such contentious matters which require solicitors' advice.

Protection from removal in the articles
While sec168 makes it clear that a director can be removed by an ordinary resolution of the shareholders (i.e. by a simple majority vote), it was established in the case of Bushell v. Faith that a clause which provides enhanced for voting rights on such a resolution for the director whose removal is sought will be effective. Such a clause can be very important. Consider, for example, a company with three equal shareholder/directors. If two of the three fallout with the third, they have the voting power to remove him or her from office. A 'Bushell v. Faith clause' in the articles can prevent this. Deciding whether to include such a clause should be part of a wider review of the articles, as there are other ways in which the minority shareholder can be protected. Wider protection can be gained by having an appropriate shareholders' agreement.

Shareholders' agreements
A shareholders' agreement is a contract between all or some of the shareholders in a company that they will use their voting power for certain agreed purposes. A very common term of such an agreement is that the parties will keep each other in office as directors, though such agreements usually include a wide range of provisions. We provide a shareholders' agreement service.

Our services
We can put in place protection for a director against removal from office by

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